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Shanghai's lofty targets take shape

THE Shanghai municipal government said it will step up housing construction, offset high taxes and offer financial incentives as part of a package of measures to implement the central government's directive to turn the city into the Wall Street of the East by 2020.

The city's plan goes into effect on Saturday.

Fang Xinghai, head of the Shanghai Financial Services Office that is spearheading the changes, outlined the city's plans to transform itself into a global financial center in a speech last week. The following Q&A is based on his remarks.

Q: How does the city plan to attract financial talent?

A: The local government will hasten the construction of apartments especially for financial professionals.

The local government will also give professionals capital as an incentive to ease the impact of the Shanghai tax rate, which is higher than other Asian financial centers.

Q: On June 17, Shanghai became China's first large city to announce a trial project that eases the process for outsiders to attain resident status. Will that continue?

A: The city is simplifying procedures for obtaining residence cards and permanent residence as part of our plans to attract financial professionals. We will also smooth the system for their children's education here.

Q: Shanghai is already a magnet for overseas banks in China and is home to two-thirds of overseas companies incorporated in China, including HSBC and Citibank. However, the headquarters of the big-four state owned banks are still based in Beijing. How does the city plan to attract and nurture new financial institutions in Shanghai?

A: Shanghai will grant one-time funds to overseas institutions that want to incorporate their local subsidiaries in the city. The city also will offer a one-time capital incentive to financial institutions to set up headquarters in Shanghai. The city government may also offer follow-up funds to institutions that exhibit outstanding performance in Shanghai within five years of their operations. Big financial institutions that set up their operation centers, such as credit card center, in Shanghai will be eligible for similar incentives.

Q: How do you plan to encourage financial innovation?

A: The Shanghai government will set up an award program to reward financial innovation and encourage all players in the financial industry to adopt new methods in areas including product design, operating techniques, provision of services and corporate management.

Q: Shanghai has outlined a blueprint of building the financial district of Lujiazui on the east of the river with the downtown Bund area on the west side. Lujiazui is already home to global financial players such as HSBC, Bank of Communications, Allianz and MetLife, while the Bund, the Far East financial center of the 1930s, is to be transformed into an area specializing in newer financial products, such as private equity and venture capital. How do you envision the geographic layout of Shanghai as a financial hub?

A: The Shanghai Financial Services Office will work with district authorities and other related parties to develop the financial services industry.

Q: Local institutions such as Pudong Development Bank are under the supervision of Shanghai, while the four big state-owned Chinese banks are under the authority of the central government. How will the reform plans affect these players?

A: We have outlined a plan to reform state-owned financial assets in Shanghai. The plans have three main aims. First, Shanghai wants to encourage leading financial companies to set up business in the city through mergers or acquisitions. The city also aims to build up its locally supervised institutions into financial services firms of nationwide standing.

Second, Shanghai aims to deepen the reforms in financial institutions under its supervision to ensure they are players with ample capital, strict internal risk controls, strong innovative capabilities and high efficiency.

Third, Shanghai will seek to strengthen the supervision of state-owned financial assets to better their strategic layout in the city.

Q: What measures are proposed to strengthen the competitiveness of state-owned financial institutions in Shanghai?

A: The measures include deepening reforms on recruitment procedures at state-owned financial institutions. For most institutions, the senior management team, with the exception of top executives, should be hired in line with best market practices. The senior management's salary package should be based on market prices and be decided by the board of directors.

Q: How can your office strengthen the supervision of the state-owned financial institutions?

A: Our office supervises the state-owned financial assets on behalf of the local State-owned Assets Supervision and Administration Commission. There is a proposal to set up a city-level team, led by city leaders, to coordinate related issues.

Q: What are the newly added functions of your office?

A: The Shanghai Financial Services Office was established in September 2002. The office has seen its functions increase in tandem with the city's plan to be a global financial hub.

First, the office will draft measures to boost the financial industry's services to improve the local economy.

Second, the office will supervise state-owned financial assets in Shanghai on behalf of the local State-owned Assets Supervision and Administration Commission.

Third, the office will be responsible for the supervision of new types of financial institutions, such as private equity and venture capital firms, that fall under the authority of the city government.

Fourth, the office will boost financial intermediary services in the city, including drafting of guidelines for the sector.

Fifth, the office will work with related authorities to develop the financial industry in the city.

Sixth, the office will also boost regional cooperation among financial industries.

The office will also strengthen its original functions, such as improving services to financial institutions and financial professionals, boosting financial innovation and strengthening financial stability.

China sees hope in global downturn

Maggie Zhang

Where some see crisis, China sees opportunity.

The State Council's guidelines promulgated in March demonstrated China's determination to embrace globalization and use the financial crisis as a springboard to enhance its position as an international leader in financial services and build a sound financial system that is able to blunt the impact of future crises.

Shanghai is seizing the opportunity to catch up with established financial centers, such as New York and London, that were battered by the global financial crisis.

To realize its ambitions, Shanghai must work to build multi-level financial markets, improve financial services and enact reforms to open up the industry further. The moves have been welcomed by overseas institutions.

"The crisis will cause an acceleration in the shift of capital markets from the West to the East," said Richard Yorke, president and chief executive officer of HSBC Bank (China) Co. "Shanghai, as an international financial center, will play a key role in the long-term economic growth of China and the world."

Among innovative policies, Shanghai is participating in a trial project allowing the yuan to be used as the currency in cross-border trading.

Other proposals, including deferred tax payments on individual pension products to boost the insurance sector, are also in the pipeline and expected sometime this year.

Shanghai is already home to the country's biggest stock exchange, its sole gold bourse, its major futures exchange market and its foreign-exchange market on the Chinese mainland.


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